Once again, long-term support has successfully held for the dollar. The options market revealed that players were moving in anticipation of this bounce, but some observers were caught trying to use fundamentals to explain the action. Since the payroll number was the biggest news on Friday, it seemed players were bullish on the dollar because of the [insert your interpretation here: good/bad] payroll numbers. Instead, I suggested it was purely a technical move.
The red line streaking diagonally across the bottom of the chart marks the long-term support from the 2008 lows. The monthly chart below provides this longer-term perspective:
*All charts created using TeleChart:
This bounce resolves the first half of my “conundrum” – I was betting on yet another bounce, but I remain convinced this support will not hold up much longer. Now, I can prepare to unwind the dollar longs and switch to a longer-lasting dollar bearish position. A bounce to the 50-day moving average (DMA) seems like a natural spot to make the transition, but, as always with currency moves, I will make day-by-day, week-by-week judgment calls.
I found the latest series of headlines from dailyfx.com quite telling for the dollar’s short-term prospects:
“US Dollar: Long-Awaited Reversal Underway” (Thursday, 10 March 2011)
- EURUSD – Euro Forecast to Turn Lower Against US Dollar
- GBPUSD – British Pound Outlook Calls for Losses
- USDJPY – Japanese Yen Bias Less Clear
- USDCHF – Swiss Franc Rallies Likely to Slow
- USDCAD – Canadian Dollar Could be at Sentiment Extreme
Be careful out there!
Full disclosure: net long U.S. dollar